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The Trilemma in History: Tradeoffs Among Exchange Rates, Monetary Policies, and Capital Mobility

  • Maurice Obstfeld

    (University of California, Berkeley, NBER, and CEPR)

  • Jay C. Shambaugh

    (Dartmouth College)

  • Alan M. Taylor

    (University of California, Davis, NBER, and CEPR)

The exchange-rate regime is often seen as constrained by the monetary policy trilemma, which imposes a stark tradeoff among exchange stability, monetary independence, and capital market openness. Yet the trilemma has not gone without challenge. Some argue that under the modern float there could be limited monetary autonomy; others, that even under the classical gold standard domestic monetary autonomy was considerable. This paper studies the coherence of international interest rates over more than 130 years. The constraints implied by the trilemma are largely borne out by history. © 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 87 (2005)
Issue (Month): 3 (August)
Pages: 423-438

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Handle: RePEc:tpr:restat:v:87:y:2005:i:3:p:423-438
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